Does Hua Ying Technology (Gruop) (SZSE:000536) Have A Healthy Balance Sheet?

Simply Wall St · 03/10 23:20

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Hua Ying Technology (Gruop) Co., Ltd. (SZSE:000536) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Hua Ying Technology (Gruop)

How Much Debt Does Hua Ying Technology (Gruop) Carry?

The image below, which you can click on for greater detail, shows that Hua Ying Technology (Gruop) had debt of CN¥2.77b at the end of September 2024, a reduction from CN¥3.64b over a year. However, because it has a cash reserve of CN¥734.6m, its net debt is less, at about CN¥2.04b.

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SZSE:000536 Debt to Equity History March 10th 2025

A Look At Hua Ying Technology (Gruop)'s Liabilities

We can see from the most recent balance sheet that Hua Ying Technology (Gruop) had liabilities of CN¥3.20b falling due within a year, and liabilities of CN¥1.61b due beyond that. Offsetting this, it had CN¥734.6m in cash and CN¥153.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥3.92b.

Hua Ying Technology (Gruop) has a market capitalization of CN¥16.7b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Hua Ying Technology (Gruop)'s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Hua Ying Technology (Gruop) reported revenue of CN¥2.0b, which is a gain of 74%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Hua Ying Technology (Gruop) still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CN¥1.1b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of CN¥1.4b into a profit. So to be blunt we do think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Hua Ying Technology (Gruop) that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.